Global chocolate makers promise to source only ethical cocoa by 2020, but data show that this is unlikely to happen

Big chocolate makers are putting a lot of effort into ensuring all their cocoa will come from ethical and sustainable sources by 2020. However, these “ethical cocoa” programs are not helping cocoa farmers as much as expected due to the drastic decrease of the premium for their products over the last few years, a report in Reuters states.

Ethical cocoa is intended to reduce child labor, prevent deforestation, and improve the wages of the average cocoa farmer. Increasing amounts of chocolate are sold through certified schemes like Fairtrade, Rainforest Alliance, and UTZ Certified.

Independent certification groups issue their approval to farmers who are producing their cocoa using fair practices. Companies can mark their chocolate products as ethically-produced.

Premiums for certified cocoa farmers have dropped due to oversupply

However, UTZ recently reported that its premiums for cocoa sold under its label have dropped by a third over the past five years. Cocoa farmers got paid much less for UTZ-certified cocoa in 2017 than they did back in 2013.

West African farmers produce two-thirds of the cocoa in the world. Most of them live below the poverty line of $2 per day.

The current glut has significantly reduced the price of cocoa. However, ethical schemes like UTZ are supposed to compensate for that by making sure more money goes to the farmers.

UTZ has also more than doubled its certified cocoa volumes by 2017. So why are farmers getting less money despite selling more produce?

Critics point out that UTZ does not compel firms to pay a fixed price to cocoa farmers. Fairtrade is the only major certified scheme to require a price floor and a fixed premium.

Spokespersons from competitor Rainforest Alliance counter that decreasing premiums do not automatically mean things are going worse for farmers. They claim farmers could be selling more cocoa or investing in resilient businesses.

Some certified schemes are pushing cocoa farmers to produce more

While business is booming for UTZ, Fairtrade is struggling to expand. The market share of the latter scheme only increased by three percent from 2013 to 2016 for a total of 15 percent.

Fairtrade uses living wages to model its premiums. It sets a floor price of $2,000 per ton and a fixed premium of $200 per ton.

These practices provide a safety net for cocoa farmers when prices for their products drop. But they also drive off most chocolate companies that are trying to meet their 2020 deadlines for 100 percent ethical and sustainable supplies.

Since the demand for their product is lower, Fairtrade producers often end up with leftover certified beans. They usually sell these on the cheaper conventional market, although farmers who have certifications with the other schemes can dispose of their excess product there.

The two schemes say that the way to improve the plight of cocoa farmers is to enhance agricultural practices. According to Rainforest Alliance, farmers will be better off if they grow and sell more cocoa. Chocolate makers like Mars and Hershey are following similar strategies for improving the productivity of cocoa farms.

Experts have pointed out drawbacks to this approach. Most West African farmers cannot afford the investment. They are also having trouble adopting the new methods.

Furthermore, producing additional cocoa would increase the current oversupply. That leads to even lower prices.